As the world’s nations converge on Cancun this week for the two week UN Climate Change Conference (COP16) a few statistics are in order to put the supply chain and related logistics industry into perspective. It’s a pretty sure bet (given poor results at COP15 in Copenhagen and recent Congressional elections here in the U.S.) that it’s unlikely that any major binding agreements will be reached on setting measurable and verifiable targets for greenhouse gas (GHG) emissions cuts for industrialized nations. What is at least hoped for is that there will be some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.

Logistics and Transportation Share a Big Piece of the Carbon Pie

But the fact remains that logistics is a major source of CO2 emissions, accounting for 13.1% of global greenhouse gas emissions, according to the Intergovernmental Panel on Climate Change (IPCC, 2007) – although, this figure also includes passenger transportation. The “transport sector’ sector as a whole is responsible for 24% of global CO₂ emissions! So as the logistics industry grows and expands to respond to the ever changing demands by global commerce, so will energy consumption and GHG emissions related to daily logistics. To that end, in a report issued this fall by Deutsch Post/ DHL, “Delivering Tomorrow: Towards Sustainable Logistics”[1], a study of more than 3600 companies found that “two-thirds, i.e. 63 % of business customers, believe companies will regard transportation as a key lever to reduce their carbon footprint”. And while the report suggests that low-carbon logistics solutions and flexible transportmodes are not yet widely available, there are a few market-readytechnologies or solutions today that can meet the specific needsof the transport and logistics sector.

“We want to take a significant step forward to improving carbon efficiency and do our part to facilitate a low-carbon economy,” says Chief Executive Officer of Deutsche Post DHL Frank Appel. Deutsche Post DHL was the first logistics company worldwide to commit to a carbon efficiency target – 30 percent improvement by the year 2020 compared with 2007. Other companies such as UPS and FedEx are implementing similar programs designed to optimize operations in a sustainable manner.

The report also cited that “70 % of respondents believe that legislation is needed in order to bring about a substantial shift towards a sustainable logistics industry.” The study shows that carbon pricing mechanisms can likely accelerate a market-based dynamic toward more sustainable solutions. Once there is a real price tag attributed to carbon emissions, the environment will be an integral part of investment decisions. Customers in Asia in particular appear quick to accept that sustainable solutions may cause higher prices, according to the study. For example, 84 percent of consumers in China, India, Malaysia and Singapore say they would accept a higher price for green products – compared to only 50 percent in Western countries. This type of hesitancy on the part of Western countries falls in direct line with the ‘foot dragging’ that has occurred at past climate conferences.

The report concluded by suggesting seven key developments that are likely to take place that can largely be influenced by the ways that logistics can affect global commerce:

1. Logistics counts – it is not a commodity. Logistics is not only a chief catalyst of global trade and a defining component behind value creation – it is also a business of strategic importance in the move towards a low-carbon economy.

2. Technological change will be achieved through a concerted planning and implementation effort between private companies, governments and financial institutions.

3. Collaboration will increasingly be seen as an enabler to attain sustainability even between perennial competitors. This will especially be the case as greenhouse gas emissions reduction becomes a priority for suppliers, business customers and logistics companies.

4. Business models of logistics companies will change as sustainable innovations and technological advances create new opportunities.

5. Carbon labeling will become standardized. Carbon ‘tags’ offer ways for customers to compare environmental impacts of products. This increased product ‘transparency’ can raise confidence among logistics customers and end consumers when making climate-friendly choices.

6. Carbon emissions will eventually have a price tag, whether it’s mandated by law or not. Already, carbon accounting has become part of companies accounting, decision making and corporate reporting practices in many market sectors. Increasing movement in this direction, with possible government or free market intervention will only increase the demand for a price to be attached to CO2 emissions.

7. Carbon pricing will lead to more stringent regulatory measures. However companies will only accept a price tag on carbon emissions if governments ensure a level playing field across industries (and more challenging will be across economies).

Companies are not Waiting Around

Already, big product manufacturers and retailers like Unilever and Walmart are reaching deep into their supply chain to stock shelves with less harmful products. Gavin Neath, senior vice president for sustainability for Unilever says that this approach not only helps the company cut costs, but create new products that are less impacting to the environment and expand in developing-world markets that are likely to be hit hard by global warming, he said. With efforts to secure a global climate treaty barely inching forward “big companies like ours, which have very extensive supply chains, reaching across all continents and 60, 70 countries, can make a difference,” Mr. Neath explained.

It’s been suggested by some practitioners and policy makers that at COP16, a binding agreement is more likely to occur when countries take ownership of their entire life-cycle emissions and when such agreements are based on data that attributes emissions fairly. It’s also been proposed that national inventories be generated by adopting measurement tools that follow the principles established by existing carbon accounting methodologies already used by corporations and at a product level. Supply chain wide carbon accounting (at the product design, manufacturing and distribution levels) is a vital ingredient to achieve this result.

I’ll be watching COP16 developments closely in Cancun these next two weeks and will offer additional insights about what potential policy driven outcomes these negotiations may have on supply chain logistics.

[1] The study on sustainable logistics was developed with experts from MIT, Potsdam Institute for Climate Impact Research, National University of Singapore and the Technische Universität Berlin, Deutsche Post DHL, and manufacturers/retailers like Fujitsu, Henkel, HP, Unilever, and Walmart.

Two items caught my eye recently. One is a new report called the State of Sustainability Initiatives (SSI) Review 2010. This review was a collaborative effort by the International Institute for Sustainable Development (IISD), the International Institute for Environment and Development, Aidenvironment, the United Nations Conference on Trade and Development, and ENTWINED–Environment and Trade in a World of Interdependence.

The focus of the SSI Review 2010 is geared specifically to agricultural commodities, specifically the forestry, coffee, cocoa, tea and banana sectors. What is interesting is that the review focuses on “voluntary sustainability initiatives” (VSI) and how they can impact overall market performance, governance, criteria coverage and implementation practices. More interesting is how the report treats supply chain dynamics and decision-making. In a nutshell (no pun intended!) the report reveals that major voluntary initiatives are altering the way supply chain decision-making is made by “providing civil society and developing country stakeholders with a more active role in setting trade rules and production practices”. Further the report underscores how increased levels of stakeholder pressure and transparency in the marketplace are reshaping collaboration across and between supply chain networks.

Embracing the Triple Bottom Line

The SSI report indicated that companies are embracing triple bottom line aspects of their products in managing inputs and outputs along the value chain, focus within the three primary sustainability spheres:

Environmental criteria are strongest related to integrated pest management and use of restricted substances or prohibited chemicals, though less so on issues related to energy conservation and greenhouse gas management

Social criteria revolve less around gender, employment benefits, community involvement, and humane treatment of animals and more towards around International Labour Organization (ILO) conventions, (mainly coverage of health and safety and employment conditions).

Economic criteria are less likely to be addressed across the agricultural sectors although focus on product quality requirements and minimum wage requirements are gaining steam.

Focus on “Radical” Transparency

Growth across voluntary sustainability initiatives is also being driven by growing demands for transparency in global supply chains. There are generally three types of transparency evaluated in this report[1]:

Information Transparency: the act of making accurate, useable and substantial information available to stakeholders.

Participatory Transparency: the act of selecting the information to be made available based on user needs and input (i.e., “participation”).

Accountability Transparency: the act of presenting information that is neutral, objective and balanced, allowing stakeholders to reach their own conclusions regarding performance or evaluation.

The SSI Review reveals that “voluntary initiatives are playing an important role in improving supply chain transparency by bringing more credible systems for monitoring, enforcing and reporting on good practice.” Specifically, key findings include:

70 per cent of the initiatives reporting compliance with ISO 65[2] or application of an independent accreditation system;

almost all of the initiatives surveyed applying an annual audit process to ensure compliance with specified criteria, although there is considerable diversity in the degree of flexibility with which such processes are implemented; and

70 per cent of the initiatives surveyed managing a separate Chain of Custody standard and a majority of initiatives applying some form of segregation of compliant products to allow for traceability.

This tendency toward additional transparency in the supply chain is lessening the potential for false product claims, although ‘greenwashing’ remains a constant threat to consumers looking for the “real deal” when purchasing environmentally responsible or eco-friendly food or consumer products.

The report further goes on to state that “transparency improves what we know about markets and the institutions that drive them. Improved access to information helps everyone in the market better understand the implications of their investments and dealings within the market. By enhancing information flow, transparency can promote market efficiency, social welfare and cost internalization, all core principles of sustainable development. Improved information also allows stakeholders to participate more knowledgably in the governance processes—thereby promoting participatory governance, also a core principle of sustainable development.”

Unilevers “Big, Bold” Example

Almost simultaneously to the release of this report comes a huge announcement last week of Unilevers plan to reduce its environmental footprint by 50% by the year 2020. According to the article in GreenBiz.com by @marcgunther, the Sustainable Living Plan “breaks new ground for a number of reasons.

It is comprehensive, setting more than 50 social, economic and environmental targets.

It is rigorous; the company says it has measured the carbon, water and waste footprints of 1,600 products, representing 70 percent of its volume.

It’s far-reaching, taking into account the full life cycle impact of its product, from “seed to disposal,” as one executive put it.”

Unilevers plan is big, “hairy” and audacious- just what companies need to do stay ahead of the competition by implementing VSI’s that respond to consumer needs. As part of the plan, Unilever plans to source 100% of its agricultural raw materials “sustainably” by 2020. This will include aggressive supply chain outreach, monitoring and measurement (the metric will be raw or packaging material sourced from verifiable (certified and some self verified sustainable renewable sources or materials made from recycled materials (% by weight)). Tea and palm oil are already in the queue with additional materials to be added as part of a sustainability focused program in place for the past 12 years. They also began to assess their environmental impact across the supply chain from sourcing raw materials to production, distribution, consumer use, and disposal. Unilever has also implemented a Business Partner Code to ensure their suppliers meet their expectations on social and environmental impacts.

Supply Chain Value Recognition

The SSI Review and companies like Unilever are motivated by recognition that improved understanding of customer behavior, recognition of sustainable development challenges faced in a global marketplace and effective policy initiatives are vital to business success and societal vitality. Doing so in a deliberately transparent and collaborative way stimulates innovation, better design and effective flow of goods and services across and through networks, continents and communities (from resource extraction to production, to distribution, to consumer and back again if possible).

Great lessons and cues on supply chain sustainability practices can be taken from the SSI report and Unilever regardless of what market sector you operate in. You don’t have to be a coffee producer or banana company to gain an understanding as to how voluntary sustainability initiatives can improve your business and how driving these initiatives through your supply chain can gain great competitive advantage.

[2]ISO 65 is the International Standards Organisation (ISO) guideline ‘General requirements for bodies operating product certification systems’. It is a general guide for product certification and has been referenced or used as a base for most organic norms and regulations (especially in Europe, Japan, Canada etc.)

Two news items caught my eye this week, not only for what they were attempting to achieve but for the (possibly?) vastly different approaches being taken. Two governments- one the U.S, the other the U.K. Both governments have been progressively stepping up efforts to engage federal contractors and vendors to support government green spending efforts, but by different approaches. First let’s start stateside.

Last week’s GreenGov conference in Chicago generated a lot of buzz. One notable outcome was the creation by the White House Council on Environmental Quality and US General Services Administration-led effort called the GreenGov Supply Chain Partnership and Small Business Pilot. The primary goal of this voluntary collaboration between the federal government and its suppliers to enhance the federal governments compliance with Executive Order 13514 by creating frameworks for a greener, more efficient supply chain. One primary goal of EO 13514 “to establish an integrated strategy towards sustainability in the Federal Government and to make reduction of greenhouse gas emissions (GHG) a priority for Federal agencies.” The EO goes beyond just focusing on reduction of greenhouse gas emissions though, encouraging suppliers and vendors to take a proactive approach to environmental management (even going so far as encouraging voluntary certification to standards such as ISO 14001)

According to Council on Environmental Quality Chair Nancy Sutley, “The Federal Government purchases $500 billion in goods and services annually, so you could say the Federal supply chain represents an enormous opportunity to support a clean energy economy. Through our new GreenGov Supply Chain Partnership, Federal suppliers can agree to voluntarily measure, reduce, and report their greenhouse gas emissions to help GSA design an incentive-based approach to developing contracting advantages for companies that share our sustainability goals. We’ve already partnered with 60 small businesses for a pilot program that will explore the benefits and challenges of measuring greenhouse gas emissions for small business participants.”

Participating companies will share their experiences to help GSA develop a phased, incentive-based approach to developing contracting advantages to companies that track and disclose their greenhouse gas emissions. Small Business Pilot Program participants will receive technical assistance through GSA to measure, report and reduce their greenhouse gas emissions as a part of the effort. More information on the GreenGov program is available at www.whitehouse.gov/greengov.

Meanwhile, “across the pond” (I love saying that), the British government recently made a similar announcement, but the tactics are quite different. In October, the Department for Environment, Food and Rural Affairs (DEFRA) published its “Action Plan for Driving Sustainable Operations and Procurement Across Government”. In this document they state that “The Government is committed to becoming the ‘greenest ever’ and will lead by example in its operations and procurement”. This is a sweeping program to green government (very much like the US. plan, but going well beyond greenhouse gas emissions reduction). In planning to achieve these goals, DEFRA has established “Government Buying Standards”. The Suppliers guide provides detailed standards and best approaches to sell goods and services to DEFRA . Other agencies in the British government have developed similar standards as well. In each case, robust approaches haven been developed to engage suppliers, educate them on environmentally and socially responsible practices. But thanks to information provided to me on a chance Twitter encounter with fellow Twitterer @garethkane, many U.K. agencies are now scoring suppliers and giving them points (as much as a 10% edge) for enhanced green practices as part of the tender process.

Whereas the U.S. GSA approach on the surface appears collaborative and designed to create a robust procurement process, the downside in my view is that progress will be slow (I view this as the “carrot” approach). The U.K. approach is more of the “stick”. In both cases, transparency and collaboration are keys to success. But I cautiously view the GSA approach as somewhat unnecessary and it does little more than slow down the inevitable. As GSA says, it wants “design an incentive-based approach to developing contracting advantages”- OK, then do it, just like the British government did. And while I like the small business “pilot”, is it really necessary to make efforts “voluntary” for larger businesses?

Perhaps the U.K has been at this a while longer, though I doubt it. Greening of the U.S. government has been in slow motion (almost glacial) progress since President Clinton signed Executive Order 13123 in 1999. What are your thoughts? Are you in favor of the carrot or the stick? As I recently said, private industry needs to stop procrastinating on green supply chain management or risk losing customers. Why delay the inevitable so you can get it just right. Perhaps my message to the GSA and U.S. policy makers is to also stop procrastinating and (as they say in Texas) “git ‘er done”.

In an earlier post I mentioned the soon to be availability of “The Portland Bottom Line: Practices for Your Small Business from America’s Hotbed of Sustainability”. Well, the book has arrived and I am more proud than ever to be a contributor to this publication. The short 400 word essays by myself and over 50 contributors explores how small businesses can effectively and efficiently shift toward sustainability and thrive in a challenging economy. Contributors collectively chose, by vote, the local community organization Mercy Corps Northwest, which supports the launch and growth of sustainable ventures, to receive 100% of the profits from the book’s sales.

My excerpt from the book can be found in Part 3- Prosperity and is included in its entirety below. Enjoy, buy the book and make a contribution to the growth of sustainable enterprise!

A few years ago, I assisted a water utility in implementing a sustainability focused initiative based on the International Organization for Standardization (“ISO”) 14001-2004 Environmental Management System standard. Many public and private organizations operate in functional silos, often don’t coordinate well, communicate effectively or run efficiently. Creating a triple bottom line-focused organization requires that all parts work together—like organs of a living being. This utility was inefficient with taxpayer dollars and under intense public scrutiny to improve its operations. It was not healthy. Through the two-year journey with the [utility], I worked hard to know each of its parts, how they interacted, where the trouble spots were, and where good health was. The goal was to build a holistic, sustainable organization that capitalized on its best assets: the staff.

To be truly optimized and efficient, it was vital to shore up operational weaknesses. The program focused on new communication techniques, champion-building, public environmental awareness, and creating a culture of continuous change management. Public agencies are often stuck in a business-as- usual (“BAU”) mindset. The ISO 14001-2004 program and other internal performance turn-around initiatives required moving beyond the BAU mindset. Key steps and measures that contributed to the turnaround included the following spheres:

Social: Proactive external public education and awareness campaigns at city-run facilities to engage community support related to natural resource management and watershed conservation efforts; employee initiatives that encouraged buy-in and financial rewards for cost saving measures and led to a reduced environmental footprint.

The organization achieved its ISO 14001-2004 certification, garnered prestigious national awards, and saved the City over $100 million in 5 years. After the certification award, a 30-year veteran of the department approached me. He hadn’t believed in the programs value at the start—maybe because of his BAU approach, or maybe he didn’t like change. He said, “Dave, I want to thank you. You made us do something that we would not have done ourselves”. That is what cultural change is all about. For once, I was speechless.

The keys to the success of this sustainability program and others like it are: cross-functional collaboration and employee input (early and often), early stakeholder collaboration, and metrics. These ingredients alone will go a long way toward laying the foundation for long term success of your organization’s sustainability initiatives and going beyond business-as-usual.

Last week, the Supply & Demand Chain Executive magazine announced the recipients of its 2010 Green Supply Chain Awards. These awards recognize companies that are making sustainability a core part of their supply chain strategies.

This is quite an impressive list and perhaps it shows that “green supply chain” as an integral function in business operations may be cementing itself as a new “business as usual”. Why? I have spoken repeatedly about how small to midsized companies are being pressured by primary customers, or original equipment manufacturers are seeing trade barrier blockage due to emerging rules and regulations, and how advancements in accounting for corporate social responsibility effort are on the rise, to name a few.

“The purpose [of the Green Supply Chain Awards], according to Andrew K. Reese, editor, Supply & Demand Chain Executive is to “highlight a range of strategies and solutions that companies are employing to incorporate sustainability into the supply chain,” Reese said. “Our readers can use this information as a baseline to assess their own efforts in this regard.” Through an online nominations process, submissions were reviewed based on the clarity and content of the sustainability and related supply chain management goals and strategies, implementation measures taken and performance results to date.

Past recipients like Schneider Electric implemented a number of measures through its supply chain designed to manage the Registration, Evaluation, Authorization and Restriction of Chemical Substances (REACH) law entered into force in the European Union in June 2007. Taking proactive action with its suppliers avoided costly disruptions in its operations.

At D.W. Morgan Co. last year, the company introduced iPhone-based mobile communications system, and with it managed to eliminate roughly 50,000 paper way bills annually.

Finally, 2009 winner Conexant Systems consolidated its hubs to two major locations in Singapore and Taiwan. This consolidation allowed the company to allowing it to mix-and-match its chip sets at those locations, leading to significant reduction and reuse of packing materials, and reduced customer shipment frequency (by up to 75 percent). Now that is efficient!

These examples demonstrate how viewing at sustainability as a vital business risk management tool can be effective at all points in the product value chain- from Sourcing/Procurement, to Product Fulfillment/Logistics, Operations, Product Lifecycle Management Design , and other areas of the product value chain.

On top of the SDCE Green Awards list, Inbound Logistics named its Top 50 Green Partners list earlier this year (some of the third party logistics and freight companies are also listed on the more recent SDEC list I might add). Visionaries every one of them for being innovative and sustainable without negatively impacting their bottom line. I encourage you to look over the list and the great accomplishments each of these manufacturers and supply chain partners have achieved.

There are a myriad of “boots on the ground” examples where companies have tackled operational efficiency and optimization and managed to reduce their environmental footprint and pare costs of production and product distribution. All it takes is innovation, a solid cross functional team, leadership support and the will to finish the job. Perhaps next year, your company will make the list.

Amid the pre- and post-election haze here in the U.S and the taking of the World Series by the San Francisco Giants (first since 1954), comes ISO 26000, Guidance on Social Responsibility. This guidance document from the International Organization for Standardization (ISO) integrates international expertise on social responsibility (SR), detailing what it means, what issues organizations need to address to operate in a socially responsible manner, and what the best practices are for implementing SR effectively and efficiently. ISO 26000 is designed to assist public and private organizations, and Small to Mid-sized Enterprises (SME) in particular by establishing common guidance on social responsibility concepts, definitions,and methods of evaluation.

The core areas of ISO 26000 (see Figure 1, courtesy of http://www.desarrollohumanosostenible.org) address potentially contentious and volatile issues such as human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development. According to the ISO, ISO 26000 provides guidance for all types of organization, regardless of their size or location, on:

Concepts, terms and definitions related to social responsibility

Background, trends and characteristics of social responsibility

Principles and practices relating to social responsibility

Core subjects and issues of social responsibility

Integrating, implementing and promoting socially responsible behavior throughout the organization and, through its policies and practices, within its sphere of influence

Identifying and engaging with stakeholders

Communicating commitments, performance and other information related to social responsibility.

ISO 26000 is unique, not because it’s taken six years to get it finalized. It’s mainly because it’s a “guidance” and not a certification standard like the more well-known ISO 9001 quality management and 14001 environmental management standards. That may be part of its weakness. Most skeptics believe that ISO 26000 will not be the “magic bullet” which suddenly replaces all corporate social responsibility (CSR) initiatives in the Supply Chain. While the guidance is not a certifiable standard, it attempts to harmonize itself with UN Global Compact guidelines for ethical business practices and a number of existing practices, principles and guidelines devoted to social responsibility, like the Global Reporting Initiative (see recent crosswalk). Other recent studies (admittedly a very small survey group of less than 60 entities) by the International Institute for Sustainable Development (IISD) prior to the final release established that ISO 26000 may increase awareness, provide definitions and add legitimacy to the social responsibility debate. However, as stand-alone guidance, ISO 26000 may not contain the practical guidance to enable SMEs to turn theory in practice.

Another recent post by Business for Social Responsibility, entitled “ISO 26000 Approved for Publication. Now What?” while not holding out great hopes for ISO 26000 stated that the guidance: “… has the potential to increase the adoption of responsible business practices by all types and sizes of organization around the world—not just corporate entities. In bringing social responsibility to all entities, it may be a useful guide for engaging your supply chain in social responsibility issues. ISO 26000 can provide a first point of call for companies to understand the concepts and implementation tools for a social responsibility program, such as advocating stakeholder engagement and issues assessment methods to define priorities.”

In fact, doing a cursory review of the Final Draft International Standard published in July found many references to supply chain management issues, especially in the areas of “environment” and “fair operating practices”. I believe that innovative,leading SME’s can successfully apply some of these guidance materials in a productive and cost effective manner. Doing so begins to institutionalize “triple bottom line” thinking into their supply chain practices.

Turning Theory into Practice- Tips for Supply Chain Integration

Environment

Practice life-cycle management – consider all the steps of a manufacturing process, and all the links in the supply chain and value chain right to the end of a product’s life and how it is disposed of;

Seek way to integrate sustainable resource use and management to make manufacturing steps as environmentally friendly as possible (especially with regard to electricity, fuels, raw and processed materials, land and water);

Test innovative technologies as a way to reduce the product environmental footprint

Fair Operating Practices

Promote social responsibility throughout the supply chain; and stimulate demand for socially responsible goods and services:

In procurement and purchasing decisions, use criteria that select ethically and socially responsible products and companies;

Examine your value chain/supply chain and be sure that you are paying enough to enable your suppliers to fulfill their own responsibilities;

Promote broader adoption of social responsibility through networks of manufacturing associations and business sector colleagues;

Seek business to business and peer network support to collaboratively develop best methods and approaches, leverage resources and document benefits

Treat suppliers and customers/consumers fairly and equitably.

Like my recent posts discussing the supply chain benefits of two other draft sustainability and green product specification standards (ULE 880 and GS-C1), large to small organizations can strive to be ISO 26000-compliant, stay ahead of the curve and grab the “leader” advantage. Or conversely, companies can risk being a “laggard” and lose vital business opportunities.

Large corporations are realizing the importance accountability, transparency, ethical conduct, and respect for stakeholders’ interests, human rights, rule of law, and international norms of behavior in managing internal and external stakeholder expectations. Why not apply the same principles wholistically through ones supply/value chain at the SME level?

If you are an owner/operator of a SME, think about your values and principles of operation. Believe me when I say that doing good can also mean doing well.